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Market Update
September 26, 2012
Team DeltaJesse Pytlak, Luc Troiani, Brad Wolfe, Rohit Lobo
Source: Google
Source: Google
Weekly Performance: S&P500, Dow Jones, NASDAQ
Weekly Performance: TSX Composite
Equity Markets Review
Valuations Stretched?
Mean: 15.48
Median: 14.45
Min: 5.31 (Dec 1917)
Max: 123.79 (May 2009)
• S&P appears overvalued on a trailing P/E basis• S&P 500 within 10% of all time high• What are fund managers outlook for equities?
• How are they positioned?• Short position constraints?
• Risk/return: equities vs. fixed income
Source: Multpl.com
Historic price to earnings ratio, based on trailing twelve month “as reported” earnings
Volatile Week for Oil
Source: CNBC
Weekly U.S. Crude futures (NYMEX, November contract) performance
• Oil as a leading economic indicator• Rumours of a release of U.S. Strategic Petroleum Reserves • Saudi Arabia suggests increasing supply• A strong correlation exists between oil prices and CAD• What are managers views on energy prices?
• Does it align with their views of the economy?• Current positioning? FX exposure?
Economic Indicators
Manufacturing sales (Sept. 14) Wholesale trade (Sept. 21)
Source: StatCan
Economic Indicators
Consumer Price Index (Sept. 21) Energy Index (Sept. 21)
Source: StatCan
Economic Releases
Release Date
CA – Retail Sales Sept. 25
CA – GDP Sept. 28
US – Consumer Confidence Sept. 25
US – House Price Index Sept. 25
US – New Home Sales Sept. 26
US – Durable / Capital Goods Sept. 27
US – Initial / Continuing Jobless Claims Sept. 27
US – Personal Income/Spending Sept. 28
Late August- SEC Proposes Changes to Advertising Restrictions
• The SEC proposed changes to the advertising restrictions on hedge funds, meaning they could potentially begin to advertise publicly
• One argument against this is that “unscrupulous” hedge funds managers may take advantage of uneducated investors
• What image does that argument give people about the ethics of the industry?
• Discussion: How will this affect hedge fund performance?
September 17th - Starboard Value Takes Activist Stake in Office Depot
• 13.3% equity stake makes it the largest shareholder
• Public letter issued to Board to push an improvement in operations
• Office Depot shares were up 10.5% in premarket trading on Monday
• Is this potentially a strategy we should look at? What are the risks?
China
Source: Google Finance
China
Source: The Economist and Forbes Magazine
• China’s Debt to GDP ratio at 16.3% - considerable “wiggle-room”
• Ample room for easing can result in a soft rather than hard landing
• Forbes estimates with “Hidden Liabilities”, Debt to GDP ratio between 90% - 160%
• Chinese communist leaders are traditionally very sensitive to inflationary measures due to potential widespread unrest
China
Source: The Telegraph and Sydney Morning Herald
• China’s manufacturing level fell to its lowest in nine years – HSBC PMI rating of 47.6
• China’s central and local governments launch a 7 Trillion Yuan stimulation package for roads and infrastructure
• Approved 60 new projects led by railways, roads, harbors, and airports
• Head of China’s Central Bank indicated that easing is not an optionZhou Xiaochuan